The Post Office is in discussions about offering banking services at its counters to customers of the Co-operative Bank. It is also considering similar links with other financial institutions.

If the deal goes ahead it would be the latest step in the Post Office's strategy of using its 20,000-branch network to offer a wider range of financial and other services.

Post Office Counters has already taken advantage of the pledge of greater commercial freedom made by the Government when privatisation was abandoned to expand into other areas such as travel insurance sales. Earlier this year it announced plans to sell scheduled airline tickets over its counters.

It also markets advertising services, exploiting the fact that 28 millon people a week use the 1,500 main post offices. A recent deal that caused controversy involved handing samples of a Nestle cereal to mothers collecting child benefit.

A trial of a link-up with the Co-op would first of all take place in a limited number of branches. The Co-op has only 149 branches, concentrated in the North-west, although it has an extensive 24-hour telephone banking services for personal customers. Last year it also launched telephone banking for small business customers.

An arrangement with the Post Office has an obvious appeal, as it has more branches than all the clearing banks put together despite the closure of some rural offices. Many post offices also open on Saturdays. Most banks have reduced their branch networks in recent years, although the Co-op plans to open nine more.

Retail deposits at the Co-op grew by 24 per cent to pounds 1.9bn last year, and it has 2 million customers.